Why You Should Keep Your Eye on the Price of Iron Ore

Shh! Did you hear it? There it was again! That’s the sound of the iron ore price falling. The price of Australia’s biggest export (and driver of national income) has fallen for six straight months. The spot price of iron ore was down 13% in May and 4.1% in New York on Friday. At $91.80, Western Australia’s big money earner is at its lowest level since September 2012.

We’ll come back to that in a second, by way of comparison with the LNG royalties about to start flowing in Queensland. But first, an invitation, an announcement, and a declaration. You may want to sit down.

The invitation is to join Markets and Money in a rolling, rollicking celebration of our tenth birthday. Your financial e-letter was conceived ten years ago this month at a round table in a London conference room. It’s not nearly as salacious as it sounds, mind you. You’ll hear more about that story later this week.

The announcement is a bit more serious, and personal. It has been the custom of Markets and Money writers to use the first person plural pronoun ‘we’ when referring to ourselves. This didn’t indicate that all the Markets and Money writers agreed on every position or even had the same cranky and bearish disposition. Nor was it a subtle nod to monarchy (many of us are republicans). It was just how things started and how we always did them. Life is full of habits.

Today, I’m switching to the first person singular. The views and ideas you find here are mine and mine alone. I wouldn’t want to sully the reputations of Greg Canavan, Vern Gowdie, Nick Hubble or Bill Bonner by using the plural first person pronoun. I’ll leave their own voices and grammatical styles up to them. But from now on, I’m writing to you as myself, in my capacity as a trouble maker and intellectual bomb thrower.

The declaration is that in its tenth year, Markets and Money is going to take the fight for common sense and financial freedom right to all the morons, crooks, imbeciles, and do-gooders in Australia, and around the world for that matter. It’s what the whole project was about to begin with: giving you an alternative point of view for the day’s news and the world’s events that cuts through all the intentional fog.

The trouble is, there are so many crazies and kooks on the internet now (compared to ten years ago), that real contrarians don’t look like outcasts anymore. It’s harder to push the envelope and write about the things no one wants to hear. But the good news is that there are more morons and crooks than ever before, so there’s still plenty of work to do.

For example, what do you make of the iron ore price decline? Intrepid Diggers and Drillers analyst Jason Stevenson is not daunted. In fact, he’s aiming to cash in on the dip, which is probably just the way you want your resource analyst to look at markets. To me, it’s just the sort of signal that precedes a market correction. Couple it with the chart below, and you should be on your guard for June.

click to enlarge

Volatility isn’t inherently evil. Traders love it because it’s associated with big price swings. But the important point about the chart above is that when the VIX spikes from a low — and you can see it’s making lows in the chart above — stocks fall quickly. The S&P ASX/200 fell almost 10% between May 10th and June 7th of last year (see big VIX spike). The spike earlier this year came right before a 5.53% fall in stock prices.

En guarde!

Yes, yes. I know what you’re thinking. Australian stocks cannot possibly fall when the official May Chinese Purchasing Managers Index showed a 50.8 reading. (You were thinking that, right?) It was up from 50.4 in April. A reading over 50 indicates expansion. And this speaks to Jason’s point that if China wants to, it can step on the accelerator, print money, and rev up the world’s manufacturing engine (which would be great for junior and mid-tier iron ore stocks).

But if you’ve learned one thing in the last ten years — at least if I’ve learned one thing — it’s that the authorities are never as competent as you think. The world is so complex now, and so interconnected, that politicians and bankers are making it up as they go along. That knowledge is not comforting to a certain kind of subservient mind. But it’s the truth. The authorities are morons.

You’ll probably see that later this week when Mario Draghi meets with the board of the European Central Bank (ECB) to discuss policy. Draghi is the new European incarnation of Ben Bernanke, while Janet Yellen is Ben’s new female incarnation. By that, I mean that both promise to make ‘war’ on deflation and thus pump up stock prices. If Draghi disappoints, markets will fall.

Or take the Bilderbergers. For years, mostly before the internet, people who knew about them didn’t know that much. It was a shadowy, elitist, globalist movement of power brokers. They’d meet in exclusive hotels in isolated locations. Nobody knew what they talked about. But the common suspicion is that they were planning, nurturing, and executing an anti-democratic new world order/police state.

That’s probably not far from the truth. But the official agenda from their meeting this weekend in Copenhagen is disappointingly banal. Take a look at some of the items up for discussion.

  • Is the economic recovery sustainable?
  • Who will pay for the demographics?
  • Does privacy exist?
  • How special is the relationship in intelligence sharing?
  • Big shifts in technology and jobs
  • The future of democracy and the middle class trap
  • China’s political and economic outlook
  • The new architecture of the Middle East
  • Ukraine
  • What next for Europe?

You see. It’s all out in the open now. It wasn’t ten years ago. But now, Google’s Eric Schmidt will rub toes with Christine Lagarde of the International Monetary Fund (IMF) over canapés to discuss privacy. NATO Secretary General Anders Fogh Rasmussen will meet with UK Financial Minister George Osborne to discuss the merits of financial warfare in Ukraine versus armed conflict. And so on.

Of course I’m making all that up. I have no idea what specific conclusions they will reach, if any. But you don’t have to be Nostradamus to figure it out. Here’s a 30-second version:

‘The economic recovery is not sustainable. The dysfunctional global dollar/debt system has merely been papered over with more sovereign debt. The middle class will get screwed and young people especially. To prevent economic dissatisfaction from leading to social instability that undermines the legitimacy of nominally democratic governments, intelligence agencies will have to share information and use technology to create a virtual police state that keeps people in-line. Robots and software bots will be deflationary for wages and the number of jobs human beings do. Rather than liberating, this will further destabilise society and create an even greater need for police state control through technology.’

There. That wasn’t so hard was it? Later this week I’ll show you what the Bilderbergers have planned for Ukraine, China, the Middle East, and Australia. In the meantime, keep your eye on the iron ore price. More on that tomorrow alongside the LNG royalties about to start flowing in Queensland.

And keep your calendar open for a very special ten year birthday party later this year.


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Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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